April 17, 2013

Commodities Trade Haven Faces Protests

The powerful Swiss commodity sector is under fire here, as citizens
fed up with government inaction on charges of corporate corruption, tax
evasion and lack of transparency gear up for major protests.

Switzerland is anything but a country
rich in raw materials but it is, nevertheless, a major hub for
international commodity trade, hosting some of the world’s biggest
commodities companies such as Glencore (which specialises in power
generation, steel production, oil and food processing); Xstrata (copper,
zinc, aluminium, nickel and coal-fired electricity), Vitol (which ships
oil products like gasoline, diesel, jet fuel and metals, as well as
ethanol and chemicals) and Mercuria (dealing in oil and energy
products).

Swiss-based companies are estimated to have a share of 15 to 25 percent of the global commodities trade.
Data provided by the industry reveals that 60 percent of the global
metals and coffee trade is done in Switzerland. In sugar, the Swiss
sector has a market share of 50 percent and in crude oil and grains it
makes up 35 percent of global trade.

Against this backdrop, Swiss critics are preparing for a chance to
voice their grievances with these massive commodities giants at the
second annual Financial Times Global Commodities Summitto be held in the city of Lausanne, about 60 kilometres northeast of Geneva, on Apr. 15.

Organisers describe the official conference as an “unparalleled”
opportunity for executives of the world’s biggest investment banks,
trading houses and natural resource entities to come together and
debate, network and strategise about the future of world trade.

But protestors say the summit “is a symbol of exploitation and speculation”. “While the companies’ profits increase, the local population in
mining countries suffers from environmental damage, expulsion, tax
avoidance and anti-trade union measures,” Yvonne Zimmermann of
MultiWatch, a broad coalition of NGOs, trade unions and
anti-globalisation organisations, tells IPS.

An alliance of two-dozen organisations is calling for a demonstration
to coincide with the arrival of businessmen in Lausanne on Apr. 15.
Speaking on behalf of the protest organisers, Alwin Egger tells IPS the
march, which is expected to draw hundreds, will move towards the Hotel
Beau-Rivage Palace, where the summit takes place.

A member of the anti-globalisation Association for the Taxation of
financial Transactions and Aid to Citizens (ATTAC), Egger says, “In our
opinion, it’s the people who should have control over extraction and
trade of raw materials, not profit-oriented companies.”

Over the last decade, the commodities business has grown
exponentially in Switzerland. In 2011, its net receipts from trade added
up to 20 billion Swiss francs (or 21 billion dollars), contributing 3.5
percent to the country’s gross domestic product (GDP). While some
corporations are only involved in either commodity trade or extraction,
most of them offer services throughout the entire supply chain.

For more than a century, commodity companies have flocked to
Switzerland to avail themselves of the country’s low tax rates and the
privileged corporate taxation system. Holding companies, for example,
are exempt from corporate income tax on cantonal and communal levels as
long as they own shares in foreign companies only. Besides, Switzerland
offers strong banks, political stability and a high standard of living.

That the country wasn’t a member of the United Nations until 2002 was
another factor behind its popularity, as it allowed Switzerland-based
companies to avoid U.N. embargoes and sanctions.

The commodities business is known for its discreetness. But as of
late, that peace has been disturbed by NGOs such as the Berne
Declaration (BD), which published a groundbreaking book in 2011 to shed
light on some of the dubious practices the sector constantly engages in.

Accusations range from human rights abuses, ecological destruction, exploitation, to corruption and tax avoidance in
developing countries. In 2012, for instance, NGOs accused Glencore of
buying copper from intermediaries in the Democratic Republic of Congo
that was extracted partly using child labour and under precarious
conditions.

Entitled “Commodities – Switzerland’s Most Dangerous Business”, the
book found that “trade in oil, gas, coal, metals and agricultural
products – particularly via deals made in Geneva and Zug – has grown by
an incredible 1,500 percent since 1998…The result: Seven of the twelve
corporations with the highest turnover in Switzerland trade in…or mine
commodities.”

“As more information becomes available, attentiveness to the issue
grows” — and so does criticism, observes Zimmermann, adding that a media
spotlight on these practices has dealt a harsh blow to the industry’s public image.

But Economics Minister Johann Schneider-Amman opposes specific,
national regulations for the commodities sector. “We don’t want to treat
our companies any stricter than other, competing locations do,” he said
at a press conference, echoing the standard argument issued every time
the corporate tax system is in the line of fire: that Switzerland cannot
afford to have companies relocate elsewhere.

For critical experts like Classen, this excuse is not valid since
“there are no unregulated alternative business locations” anywhere else
in the world.

The
Swiss Federal Council has proposed a consultation draft for a
transparency regulation similar to the 2010 Dodd-Frank Act in the United
States, section 1504 of which obliges companies to disclose their
payments to governments for access to oil, gas and minerals. It is still
unclear, though, whether payments of commodity trading companies will
be included in the Swiss draft regulation.

Fearing new regulations, the Swiss commodities sector has ramped up
its lobbying efforts. Associations representing the industry have popped
up in the main commodity trading hubs of Geneva, Zug and Lugano.
Glencore recently invited Swiss parliamentarians to hear an
explanation of its “engagement for sustainable business, for the health
and safety of its employees and for the environment”. Media and NGOs
were denied access to the closed-door meeting.

“The sector is concerned that it has become the subject of
attentiveness and debates,” says MultiWatch’s Zimmermann, who protested
against the recent lobby event.

“As a reaction to criticism, these companies have started to publish
sustainability reports”, she said, which whitewash their practices and
portray themselves as charities.

Voluntary Regulations “Inadequate”

BD Media Director Oliver Classen says these companies also put
Switzerland's reputation at risk. “The negative image of Glencore, Vitol
or Mecuria affects Switzerland the same way that the misconduct of the
Union Bank of Switzerland (UBS) and Credit Suisse have in the past.” UBS
alone has coughed up 1.5 billion dollars in fines for its part in the
fraudulent fixing of the Libor rate, the agreed international rate of
exchange between banks.

The Swiss Federal Council’s recently published “background report”
dedicated to Switzerland's commodity sector has been criticised as
“inadequate” for failing to suggest serious measures for solving or
preventing fraudulent or criminal activity, though it does identify
“challenges” such as human rights violations or fighting corruption.

For example, the Federal Council highlights the importance of the
international Extractive Industries Transparency Initiative (EITI),
which promotes revenue transparency on a local level by asking companies
to publish their transactions with governments of member states, who in
turn are expected to disclose how much they receive.

Calling the initiative “necessary, but insufficient”, Classen laments that the EITI is voluntary, with only 20 member states.

“Many important mining countries – such as Angola or Colombia -- where
Swiss-based companies are very active, aren't EITI-members,” explains
Classen.

Furthermore, the transparency initiative only deals with commodities extraction, but not with trade.

“Misconduct such as Glencore's aggressive tax avoidance in Zambia is
neither covered, nor sanctioned by the EITI,” according to the Berne
Declaration.